Inflation report shows Bank of England in crisis

In response to the Bank of England’s announcement that it will keep interest rates at 0.25%, Fran Boait, executive director of Positive Money said:

“Today’s decision is another sign that interest rates are no longer an effective monetary policy tool. Falling real wages have led to a surge in borrowing, with consumer credit rising to record levels, and yet the Bank has voted to keep rates barely above zero. Mark Carney has issued warnings about household debt, but with economic conditions so fragile, the Bank is powerless to constrain it.

This morning’s inflation report downgrades the Bank’s growth forecast, as the squeeze on households’ real incomes suppresses consumption. With weak wage growth set to continue, and many households unable to keep up with rising living costs and growing debt, another downturn could be just around the corner. But the Bank is totally unprepared. It has no room to cut rates further, and expanding QE will be met with huge political resistance.

The Bank has no capacity to respond to a future crisis, and that puts us in an extremely dangerous position. It’s time we started talking about new options capable of reviving the economy, such as monetary financing. This means the Bank of England working with the Treasury to inject new money directly into the real economy, without a corresponding increase in debt. Known as QE for People or helicopter money, it’s an idea that enjoys the support of world-leading economists such as Adair Turner.